Thursday, December 17, 2015

Are We Moving Toward a Profession? Recent Developments re: DOL Rule, CFS, IFS, SEC, and CFP Board

Dec. 17, 2015

This week has been monumental in the evolution of financial planning toward a true profession.

U.S. DEPARTMENT OF LABOR'S "CONFLICT OF INTEREST" RULE & THE U.S. CONGRESS. On the regulatory front, the U.S. Department of Labor's "Conflict of Interest" proposed rule has survived several challenges in the U.S. Congress this Fall. In what some on Capitol Hill have called the most intensive, coordinated lobbying effort in many years, most of the major broker-dealers, and nearly all of the insurance companies, together with their industry organizations (SIFMA, FSI, NAIFA, and others), have extensively lobbied Congress to enact legislation that would either stop or delay the U.S. Department of Labor's fiduciary rulemaking.

Despite what you may have read in the industry press, only a few Democrats succumbed to this pressure and were willing to vote with Wall Street and against Main Street. (Others were willing to sing letters to the DOL, but were not willing to endorse legislation.) Still, the efforts of the anti-fiduciary crowd persisted, culminating in a huge effort these past several weeks by Wall Street to attach legislation (a "policy rider") to the appropriations bill. Yet, despite Wall Street and the insurance companies spending - literally - hundreds of millions of dollars via lobbyists, campaign contributions, and advertising, this effort was defeated.

How so? First and foremost, there was strong support from President Obama, his Council of Economic Advisors, and the U.S. Secretary of Labor Tom Perez. The Administration, recognizing the dramatic positive impact that the DOL Rule will possess on the retirement security of tens (if not hundreds) of millions of Americans, made the DOL Rule a "priority" in the negotiations over the appropriations bills. These negotiations represented the best chance for Wall Street and the insurance companies to stop the DOL's rule-making.

Additionally, a broad coalition of consumer and other groups coordinated there efforts, through the "Save Our Retirement" coalition. AARP, Consumer Federation of America, Better Markets, Americans for Financial Reform, Pension Rights Center, AFL-CIO, AFSCME, and over 70 other groups, contributed funds and huge commitments of time. The passion of these groups in support of the fiduciary standard for financial and investment advisers was felt throughout the halls of the U.S. Congress, despite the fact that for every visit by a member of this coalition there were likely 20-50 visits by Wall Street and insurance company lobbyists.

In addition, the Financial Planning Coalition (FPC) played a signficant role. Through timely letters of support, testimony to the DOL and Congress, and visits to Congress, and by the leadership of the CFP Board, FPA and NAPFA, the Financial Planning Coalition informed Congress that a significant portion of the financial planning community was already operating under a fiduciary standard - and serving the smaller clients.

Lastly, there was support from you, my fellow professionals. Your letters, faxes, and emails in support of the fiduciary standard played a major role in communicating the emerging profession's support for the DOL's rule-making. While I hesitate to single out specific individuals or groups, given the major contributions of so many practitioners, two advocates deserve special recognition. Kate McBride, who assumed the Chair of the Steering Committee for The Committee for the Fiduciary Standard, devoted her time and treasure to this effort, making numerous trips to Washington, D.C. over the past year and coordinating the efforts of many others. Sheryl Garrett and the members of the Garrett Planning Network contributed their tremendous support, especially at key moments over the past year.

Certainly, there will be future efforts to derail the DOL's final rule over the next year. I suspect several bills will be introduced in the U.S. Congress over the next year, as the DOL's final rule is promulgated. Already a bill has been drafted to promote a new "best interests" standard, in lieu of a fiduciary standard. If the bill is anything like what SIFMA proposed and FINRA endorsed, then Wall Street and the insurance companies would have been successful in proposing that the U.S Congress commit a fraud on the American people by redefining the legal term, "best interests," as something far less than equivalent to the fiduciary duty of loyalty. Let's hope the U.S Congress is wiser than Wall Street seems to think they are.

Despite additional upcoming efforts in Congress to derail the DOL's rule by Wall Street firms and the insurance companies, look for an early 2016 delivery of the final rule to the Office of Management and Budget (OMB). While the OMB has 90 days to review the rule, given the extensive review it already undertook of the proposed rule, and the strong Administration support, I suspect that the OMB will only require several weeks. This would result in the DOL's final rule being issued sometime late in the first quarter of 2016. With an effective date likely to be set eight months later, full implementation of the final rule would occur at the end of 2016.

I'm not saying the DOL's final rule will be perfect. But - I am hopeful that it will remain a fairly strong rule. I am somewhat hopeful that the "Best Interests Contract Exemption" ("BIC exemption"), as well as the education exemption, will be sunset after a period of years, in realization that these exemptions only facilitate the movement of the retail investment industry away from product sales and toward a service provider (fiduciary)-client relationship. Additionally, as I've written before about both the BIC exemption and the education exemption, there is a danger that these exemptions could (as a result of industry pressure) be misinterpreted, over time - another reason to sunset these exemptions after a period of 5-7 years or so. In any event, the finalization of the DOL's Rule (should it occur, which is now far more likely) provides a significant impetus for the advancement of the financial planning profession.

THE COMMITTEE FOR THE FIDUCIARY STANDARD. Spreading through the industry and consumer press has been The Committee for the Fiduciary Standard's "Fiduciary Oath." Consumers are now beginning to ask financial planning and investment practitioners to sign the Fiduciary Oath, a succinct statement of fiduciary principles, in greater numbers. And practitioners are reporting that the cover letter they send to their current clients, accompanying the signed oath, leads to an extraordinary amount of referrals. Never before has there been such a simple, yet effective, means to confirm fiduciary status to a client or prospective client, nor to differentiate the fiduciary from non-fiduciary actors.

INSTITUTE FOR THE FIDUCIARY STANDARD. Another major development this Fall, and extending back for a full year, has been the development of "Best Practices" for all those providing investment advice by the Institute for the Fiduciary Standard. This set of ethical guidelines largely "got it right" - especially regarding the all-important requirements imposed on fiduciaries when an unavoidable conflict of interest is present. In succinct terms, amplified by explanations, these Best Practices, devised by a committee of practitioners, can serve to guide the profession forward.

Hats off to the Institute for the Fiduciary Standard and to the many members of the profession who have responded, and continue to respond, to the Institute's call to "Get Involved." Through their ongoing promotion of their Best Practices, the Institute appears poised to heavily influence financial planning and investment advice as it evolves into a true profession.

SECURITIES AND EXCHANGE COMMISSION (SEC). Surprised I listed the SEC discussed in this list of recent developments? So am I. As I expressed in a recent interview with FiduciaryNews, the SEC's failure to apply the Investment Advisers Act of 1940 properly, and to enforce it, is the heart of the problem today.

In 2016 the SEC is set to embark on two rule-makings. The first, expected by March (per the SEC, although it has a habit of never meeting any deadlines, self-imposed or otherwise), would provide for third-party exams of SEC-registered investment advisers. What will this mean? Higher costs for most larger RIA firms, for certain. And - much more draconian - a greatly expanded role for FINRA (which, I have opined, should not be rewarded for its long-standing efforts to hold standards of conduct for broker-dealers low, but which instead should be disbanded).

The SEC has also announced that it desires to promulgate, under the authority granted it by Section 913 of the Dodd-Frank Act, a fiduciary standard for broker-dealers.

Frankly, I'm not very hopeful that the SEC will reverse its course of dismal rule-making, as seen over the past four decades. In and out of the SEC's revolving door between its offices next to Union Station and Wall Street flow its senior staff. The influence of Wall Street in the halls of the SEC is overpowering. It would take extremely strong leadership from the SEC Chair and the Commissioners to correct the SEC's past transgressions and move the SEC toward the adoption and enforcement of non-waivable, non-disclaimable fiduciary standards of conduct for all providers of financial and investment advice.

Still, with the DOL's rule likely to become effective, the SEC has some "political cover" in conforming its very weak view of the fiduciary standard to the stronger view possessed by the DOL. Let's only hope that the SEC can get it right.

CERTIFIED FINANCIAL PLANNER BOARD OF STANDARDS, INC. ("CFP BOARD"). Yesterday the CFP Board announced the formation of a 13-person Commission to review its standards of conduct.

As I acknowledged in prior posts, the CFP Board took a courageous stand in 2007 when it came out with the current standards, with their inclusion of the fiduciary standard of conduct and its application to the entirety of a relationship (i.e., once the fiduciary hat is in place, it cannot be removed). And the CFP Board, to their credit, has graciously made some changes in the way it promotes itself and its certificants, in response to my suggestions.

Yet, I have struggled with the fact that many CFP Certificants don't always practice as fiduciaries. And, in my view, the CFP Board's Standards of Conduct are not as clearly written as they could be, nor do they provide adequate guidance to practitioners. While the CFP Board has provided extensive commentary and education around its standards of conduct, confusion on many important aspects of the standards still reign.

As the CFP Board has now stated, in just the past eight years there have been tremendous changes in the regulatory landscape. Hence, it is time that the CFP Board re-visit its standards. This is the right moment for the CFP Board to seek input from its stakeholders and consider revisions to its standards. The DOL's Conflict of Interest final rule, the CFS' Fiduciary Oath, and the IFS's Best Practices can all serve as resources in this highly important endeavor.

I have been approached, increasingly often, by practitioners (including many past and current leaders of our organizations) with the idea of forming a new professional organization, which would promulgate true professional, fiduciary standards of conduct. While starting small, this organization would seek to promote its standards, seek to work with state securities administrators and the SEC to initiate one or more forms of peer review, and thereafter (hopefully) serve as the backbone of a future Professional Regulatory Organization (PRO).

Instead of pursuing such an initiative and the formation of a new organization, I am hopeful that the CFP Board, through its Commission to re-visit and revise its Standards of Conduct, will "get it right." And I hope, following the CFP Board's Commission recommendations and their subsequent (following more input) adoption, that the formation of some new organization will not be viewed as necessary, nor any longer even considered by others.

The CFP Board's win the Carmada lawsuit (although the case is currently on appeal) was huge, in establishing the rights of the organization to enforce professional rules of conduct against its members. The language of the court's decision, as to the deference provided to the CFP Board in the enforcement of its standards, should not be overlooked.

The CFP Board's educational requirements and exam process (despite recent changes to the testing process being criticized by some) remain exemplary. The next step for the CFP Board, in order to truly become the representative of a true profession of financial and investment advisers, is the adoption of comprehensively applied, non-waivable, non-disclaimable fiduciary standards of conduct for all providers of financial and investment advice, and for all those who use the mark, Certified Financial Planner(tm).


Today we still sit in the shadow of the Great Recession. Financial institutions are not trusted. Nor do the majority of Americans trust financial advisors. But all this can change. Together, and with strong effort and perseverance we can make 2016 the year for the restoration of trust in financial services.
  • For the benefit of our family, friends, and neighbors - our fellow Americans.
  • For the benefit of our emerging profession, so that we may call ourselves "true professionals."
  • For the benefit of the future economic growth of our country, fostered by a new era of trust and capital formation arising from the adoption of fiduciary standards of conduct for all those who provide investment and financial advice.
  • For the future of the United States of America, itself, a nation founded upon principles of devotion, trust, and service to others. 
The year 2015 may be viewed as establishing more foundations upon which a true profession of financial planners and investment advisers can be built. As we move forward into 2016, your contributions will be needed:
  • to stop ongoing efforts in Congress to derail the DOL rule-making;
  • to provide input to the SEC on its proposal for third-party exams;
  • to provide input to the SEC on its application of fiduciary standards to broker-dealers, and to correct its prior actions in which it failed to properly apply and/or enforce fiduciary standards;
  • to promote, to consumers, the distribution of The Committee for the Fiduciary Standard's "Fiduciary Oath";
  • to get involved with the Institute for the Fiduciary Standard, as it seeks greater recognition and promulgation and adoption by practitioners of its "Best Practices"; and
  • to contribute to the discussion of the work of the CFP Board's Commission exploring changes to the CFP Board's standards, either directly or via your involvement in the Financial Planning Association or the National Association of Personal Financial Advisors or other industry organizations.
Let us make 2016 the year in which we progress - intentionally, substantially, and with fortitude - toward a true profession.

Let us make 2016 the year in which financial planning finally sheds its "product sales" roots.

Let us make 2016 the year in which we can, for the first time, call all of our fellow CFP(r) practitioners "our fellow professionals" and "fiduciaries at all times."

Let us make 2016 the year of evolution, change, and monumental achievement - so that we can hold ourselves out proud, as true professionals, bound together by non-waivable, strong fiduciary principles governing our conduct and guiding our lives.

2016, more than any year before, will be the time for YOU to make an impact. As the Institute for the Fiduciary Standard suggests, just do it - "Get Involved."


  1. This comment has been removed by the author.

  2. Ron,

    Thanks for your commentary. Can you provide a link for the Congressional voting record on these bills?

    Dennis Myhre


Please respect our readers by not posting commercial advertisements nor critical reviews of any particular firm or individual. Thank you.